Understanding the Soldiers' and Sailors' Civil Relief Act of 1940
By Mary Beth Guard, Esq.
BACKGROUND
The Soldiers' and Sailors' Civil Relief Act of 1940 ("SSCRA") was designed to safeguard and protect the interests of persons in the military service. The intent of Congress was to give peace of mind to the serviceperson by granting special protections to his rights and property interests while he labors in the service of his country. The provisions of the Act allow the soldier or sailor to have his legal rights secured until he can return from the military to defend himself. You will note throughout the discussion of the Act's provisions that parties adversely affected (such as lenders) are given the opportunity to seek relief by going to court to show that the ability of the serviceperson to perform has not been materially affected by reason of his military service. In fact, some provisions require the serviceperson or his dependents to affirmatively show that their ability to perform certain acts has been materially affected by reason of the military service before they can avail themselves of certain benefits.
In order to protect your bank from liability - and to ensure that the benefits of this law are promptly and properly extended to covered servicepersons -- it is crucial that you understand how the Soldiers' and Sailors' Civil Relief Act affects your rights and remedies.
WHO IS COVERED BY THE ACT
This Act has been in force continually since 1940. It applies at all times not just when the U.S. is at war. The primary benefits are granted directly to persons in the military service. "Person in military service" is defined to include full-time members of the Army, Navy, Air Force, Marines, Coast Guard, officers of the Public Health Service (when detailed by proper authority for duty with the Army or Navy), and those persons who are on active duty with the reserves or the National Guard. For those full time members of the five branches of the service, the protections apply from the date of entry into the military; for those who are in the reserves or the National Guard, the protections start when they are called up to active duty. The period of military service terminates with the date of discharge from active service or death while in active service. As you will see below, however, some protections extend several months after termination of military service.
Note also that certain provisions of the SSCRA give benefits to the dependents of the serviceperson, as well as to sureties, co-makers, guarantors and the like.
SIX PERCENT INTEREST
The first provision you should be familiar with is Section 526 of the Act. It provides that no obligation or liability incurred by a person in military service, prior to his entry into military service, shall bear interest at a rate in excess of six percent per annum.
Keep in mind:
This must be a "pre-service" debt. It does not apply to debt incurred after entry into the military service (or in the case of a reservist, it does not apply to debt incurred after a reservist is called up to active duty.)
The interest rate reduction is automatic; it does not need to be requested by the serviceperson, although as a practical matter their request may be the only way for you to know of their service;
"Interest" is defined to include service charges, renewal charges, fees, or any other charges except bona fide insurance. Be sure you figure in these charges and fees in computing the six percent interest rate;
This section does not apply to guaranteed student loans;
The only way the lender can get relief from this section is by going to court and showing the court that the ability of the serviceperson to pay the contract interest rate is not materially affected by reason of his military service. The court may make such order as it deems just. [You may find it difficult to secure such an order because the court can stay the action and not consider your request until the person gets out of the military. The stay is not mandatory, however.];
This provision probably requires a reduction in the interest rate, even if the serviceperson is not the sole obligee on the loan, since if he is obligated at all, it could be described as an obligation or liability incurred by a person in the military service prior to his entry into the service;
This section only has application if the serviceperson is personally obligated. If it is corporate or partnership debt, unless the serviceperson has personally guaranteed it, this section will not apply.
STAYS
There are two types of stays which can be obtained under the SSCRA. These stays may affect your collection options.
l. The court, where there is an action or proceeding commenced in the court against a person in military service (regardless of whether it was commenced before or during the period of service or even within 60 days thereafter), can
a. stay the execution of any judgment or order entered against the serviceperson; and
b. can vacate or stay any attachment or garnishment of property, money, or debts in the hands of another, whether before or after judgment.
The Court is not required to grant the stay if finds that the ability of the serviceperson to comply with the judgment or order entered or sought is not materially affected by reason of his military service.
2. Additionally, at any stage of an action or proceeding in any court where a person in the military service is involved either as a plaintiff or defendant, while the person is in military service or up to 60 days thereafter, the court may, unless in its opinion the ability of the serviceperson to prosecute or defend the action is not materially affected by reason of his military service, stay the action or proceeding.
Basically, therefore, under these two provisions, any suit involving a serviceperson can be temporarily stopped, execution of judgments against a serviceperson can be halted, and attachments and garnishments can be vacated or postponed. REMEMBER: This is not automatic relief. A court must order it.
EXTENSION OF STAYS TO THIRD PARTIES
Section 513 of the SSCRA provides that whenever the enforcement of any obligation or liability, the prosecution of any suit or proceeding, the entry or enforcement of any order, writ, judgment, or decree, or the performance of any other act, has been stayed, postponed, or suspended, the court can likewise grant the same protection to sureties, guarantors, endorsers, accommodation makers and others, regardless of whether they are primarily or secondarily liable. The same holds true where the court has vacated or set aside a judgment or decree.
The Act does allow you to obtain a waiver in writing from these third parties. With respect to such a waiver:
It must be in writing;
It must be a separate instrument from the obligation or liability to which it applies;
If the person who executes it subsequently goes into the military himself, the waiver is no longer valid.
DEFAULT JUDGMENTS
Before you can take a default judgment, you must furnish an affidavit to the court stating that the person against whom the default judgment is sought is not in the military service. This is true in all default judgments. Many lawyers have gotten lax about complying with this requirement because there is no penalty for failure to comply; only if the person the default judgment is against is actually in the military is there a hazard. The person can come back in and have the judgment set aside and be allowed to defend.
If you can't furnish the required affidavit, for the reason that the person IS in military service, you will need to submit an affidavit saying that the person IS in the military. The court will then have the option to stay the proceeding. If the court elects not to enter a stay, it can only proceed after it appoints an attorney to represent the defendant and protect his interest. The court can require, as a condition before judgment is entered, that the plaintiff file an indemnity bond to indemnify the defendant against any loss or damage that he may suffer by reason of any judgment should the judgment later be set aside. The court also has authority to make further orders to protect the interest of the serviceperson.
If a default judgment is taken, the serviceperson can come back in while he is in the military, or up to ninety days thereafter, and apply to the court to have the matter reopened and be allowed to defend. The serviceperson must be able to show, however, that he has a meritorious or legal defense to the action.
This section does contain a protection for bona fide purchasers. It provides that even if the default judgment is later vacated, set aside, or reversed, that shall not impair any right or title acquired by any bona fide purchaser for value under the judgment.
FINES AND PENALTIES
If an action for compliance with the terms of a contract has been stayed, no fine or penalty can accrue for failure to comply with the terms of the contract during the period of the stay, and where a person fails to perform an obligation and a fine or penalty for the nonperformance is incurred, the court can give relief against the fine or penalty.
Note that the first part, which prohibits a fine or penalty from accruing while a stay is in force, is automatic. The second part, however, where there is no stay, requires a court to find that the ability of the serviceperson to perform the obligation has been materially affected by reason of his military service.
EFFECT ON STATUTES OF LIMITATIONS
The SSCRA provides that the period of military service is not to be included in computing the period limited by law, regulation, or order for bringing any action or proceeding in any court or administrative forum either BY OR AGAINST a person in the military service. What this means is that if the statute of limitations on a particular suit is five years, for example, and one year of it has run and then the person goes into the military, the statute of limitations stops running until he gets out; then the remainder of the time runs. This is also true when it is a period of limitation set by an order or regulation.
This particular provision cuts both ways. It extends the limitation period for persons to bring an action or proceeding against a person in military service, as well as extending the period for the person in the military to bring an action or proceeding.
PROHIBITION AGAINST EVICTION
If a serviceperson is renting premises for $1200 or less per month and those premises are used chiefly for dwelling purposes by the wife, children, or other dependents or a person in military service, the landlord must obtain leave of court to evict them.
Because this provision applies only to premises with rent of $1200 or less per month, it will not come into play very often. If it does, however, note that the court can allow the eviction if the court finds that the ability of the tenant to pay the agreed upon rent is not materially affected by reason of military service.
INSTALLMENT CONTRACTS
If a deposit or installment has been paid on a contract for the purchase of either real or personal property, or on a lease or bailment arrangement with a view toward purchase of the property, and the person who made the deposit or installment subsequently has entered military service, the person who received the payment cannot exercise any right or option under the contract to rescind or terminate the contract or resume possession of the property for nonpayment of any installment due or for any other breach of the terms occurring prior to or during the period of such military service, except by court action. The court will look at the ability of the person in the military to perform and can make such disposition of the case as it deems equitable.
MORTGAGES AND OTHER SECURITY INTERESTS
Where you have a mortgage on real property or security interest in personal property that is owned by a person in military at the commencement of the period of military service and still so owned by him, AND the obligation originated prior to the person's period of military service, if you file an action in court to enforce the obligation, due to nonpayment or other breach, the court can stay the proceeding or make such other disposition of the case as it deems proper.
CRUCIAL INFORMATION: NO SALE, FORECLOSURE, OR SEIZURE OF PROPERTY FOR NONPAYMENT OR OTHER BREACH, WHETHER UNDER A POWER OF SALE, UNDER A WARRANT OF ATTORNEY TO CONFESS JUDGMENT, OR OTHERWISE, IS VALID DURING THE PERIOD OF MILITARY SERVICE OR WITHIN THREE MONTHS THEREAFTER EXCEPT PURSUANT TO AN ORDER OF THE COURT.
You cannot engage in self-help remedies with respect to property of a serviceperson. You must get a court order first. The ONLY way to get around this prohibition is by obtaining a written agreement under Section 517 of the SSCRA. That section provides that with a written agreement of the parties (including the person in the military service) you can modify, terminate or cancel any contract, lease, bailment, or any obligation secured by mortgage, trust deed, lien, or other security in the nature of a mortgage, or repossess, retain, foreclose, sell, or take possession of property who is security for an obligation or which has been purchased or received under a contract, lease, or bailment. The written agreement must be executed during or after the period of military service in order to be effective.
TERMINATION OF LEASES BY A SERVICEPERSON
The serviceperson is given the ability to terminate certain leases. In order to take advantage of this section, the lease must cover premises occupied for l) dwelling, 2) professional, 3) business, 4) agricultural, or 5) other similar purposes. The lease must have been executed by or on behalf of a person who, after the execution of the lease, entered military service, and the premises so leased must have been occupied for the above enumerated purposes or a combination of same by the person or by him and his dependents.
If these conditions are met, the act specifies that written notice must be furnished to the lessor or his agent after the date of beginning of the person's period of military service. Where the lease provides for monthly payment of rent, termination is effective thirty days after the first date on which the next rental payment is due subsequent to the date when notice is delivered. In the case of all other leases, termination is effective on the last day of the month following the month in which notice is delivered. Unpaid rent for a period preceding termination is to be proratably computed. Any rental paid in advance for a period succeeding termination must be refunded by the lessor.
There is a penalty of fine and/or imprisonment for one who seizes, holds, or detains the personal effects, clothing, furniture, or other property of someone terminating a lease under this section, as well as for interfering with the removal of the property from the premises for the purpose (in either case) of trying to subject any such property to a claim for rent accruing subsequent to the date of termination of the lease.
LIFE INSURANCE POLICY AS COLLATERAL
If a life insurance policy on a person in the military was assigned as security for a debt of that person prior to the time he went into the military, the assignee cannot, during the period of military service of the insured or within one year thereafter, except with the consent in writing of the insured MADE DURING THE PERIOD OF MILITARY SERVICE or when the premiums thereon are due and unpaid or upon the death of the insured, exercise any right or option by virtue of such assignment, unless the assignee gets a court order allowing him to exercise the right or option. Again, the court will look at whether the ability of the obligor to comply with the terms of the obligation is materially affected by reason of his military service.
STORAGE LIENS
You cannot exercise any right to foreclose or enforce any lien for storage of household goods, furniture, or personal effects of a person in military service while they are in the military and for up to three months thereafter unless you get an order of the court.
CATCHALL CLAUSE
In addition to the specific provisions outlined above, a serviceperson also has the ability to go into court, at any time during his period of military service or up to six months thereafter, and apply for relief with respect to any obligation or liability incurred by him prior to his period of military service. The court can grant the following relief (unless it finds that the ability of the person to comply with the terms of the obligation or liability are not materially affected by reason of his military service):
l. On installment contracts for the purchase of real estate or contracts secured by a mortgage on real estate, the court can stay the enforcement of the obligation during the applicant's period of military service, and even afterwards, for a period equal to the period of the remaining life of the installment contract, plus a period of time equal to the period of military service, subject to payment of the balance of principal and accumulated interest due and unpaid at the date of termination of the period of military service or from the date of application, in equal installments during the combined period. In other words, if someone has ten months left to pay on a loan, they can ask the court to allow them to wait until they get out to pay. After they get out, they pay out the debt over the next ten months.
When a court grants a stay under this provision, no fine or penalty can accrue during the period the terms and conditions of the stay are complied with by reason of the person's failure to comply with the terms or conditions of the original obligation or liability on which a stay was granted.
Copyright, Oklahoma Bankers Association. This article was written for the Oklahoma Bankers Association at the beginning of the Gulf War by Mary Beth Guard, who was, at that time, serving as the association's general counsel.
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